First in class: Kodak created a new consumer market for photography with packaged film and inexpensive cameras like the $1 Brownie (shown), first introduced in 1900.

Kodak also invested extensively in research and development. In fact, the first electronic camera using a charge-coupled device was invented by a Kodak engineer named Steven Sasson in 1975, and Kodak in many ways led early development in digital photography. The company introduced the first megapixel sensor in 1986, and the QuickTake camera launched by Apple in 1994 had to a large extent been developed by Kodak. It looked like a pair of binoculars, stored 32 photos, and could be connected to a personal computer.

But the limited performance and the high price tag of such cameras (the QuickTake cost about $800 and a high-end digital news camera ran $15,000) meant that the market for digital photography was very small, almost insignificant for a multibillion-dollar company like Kodak. It is often difficult for large firms to bother with small markets and small profits, but Kodak nevertheless made these efforts in the 1990s.

In the meantime, Kodak’s previously stable and solid film business became increasingly vulnerable. Fujifilm kept gaining market share, and in the mid-1990s a price war between Kodak and Fuji broke out in the United States. Eventually, Kodak had to lower prices. When George Fisher became CEO in 1993, he faced the challenge of fixing the core film business while at the same time preparing Kodak for the shift to digital photography.

Source: PMA

Fisher and most of his top management realized that digital imaging would displace film in the near future and that the company had to make dramatic efforts to transform itself. In a speech to the Academy of Management in Boston 1997, he said, “We are not in the photographic-film business or in the electronics business; we are in the picture business.” Seeking to ride out the technological shift, Kodak kept launching better and better digital cameras, pushed its way into digital printing, and began laying off thousands of workers.

But the industry landscape was completely different in the digital era. Barriers to entry were significantly lowered and the industry was flooded by entrants with a background in consumer electronics, such as Casio, Samsung, and Hewlett-Packard, not to mention Japanese camera manufacturers including Canon, Nikon, and Olympus. Large parts of Kodak’s competence base related to chemistry and film manufacturing were rendered obsolete. The vertical integration that had previously been a core asset to Kodak lost its value. Digital cameras became a commodity business with low margins. The problem facing Kodak wasn’t just that film profits had died but that those revenues could not be replaced.

Once images became digital, Kodak’s business model of “doing the rest” was effectively destroyed. Doing the rest used to entail a large and complex process that only a couple of companies in the world could master. Today, it is done by the click of a button.

Christian Sandström is a PhD researcher at the Ratio Institute in Stockholm and at the KTH Royal Institute of Technology.